Stop Using the Tax Code to Solve Problems

Now there's a post title I probably wouldn't have had the nerve to use, were it not for a Tax Foundation blog post which basically said the same thing! Scott Hodge in "The IRS Needs Tax Reform Not a Bigger Budget", responds to a plea from Catherine Rampell (Washington Post) not to starve the IRS of needed monies. IRS...In need of more money and a "champion" for its cause? Something feels odd about this scenario, until one stops to consider why.

While Scott Hodge agrees with Rampell that the IRS is definitely overloaded, he believes we would be better off if the whole convoluted mess were scrapped and begun anew. I agree. Here is his request, which of course has yet to be considered:

Over the past two decades, lawmakers have increasingly asking the tax code to direct all manner of social and economic objectives, such as encouraging people to: buy hybrid vehicles, turn corn into gasoline, save more for retirement, purchase health insurance, buy a home, replace the windows in that home, adopt children, put them in daycare, take care of grandma, buy bonds, spend more on research, purchase school supplies, take out huge college loans, invest in historic buildings, and the list goes on.

In too many respects, the IRS has become an extension of, or substitute for, every other cabinet agency – from Energy and Education to HHS and HUD. But perhaps the most troubling development in recent years is that the efforts of lawmakers to use the tax code to help low and middle-income taxpayers has knocked millions of taxpayers off the tax rolls and turned the IRS into an extension of the welfare state. 

The U.S. tax system is in desperate need of simplification and reform. The relentless growth of credits and deduction in the code over the past 20 years had made the IRS a super-agency, engaged in policies ranging from delivering welfare benefits to subsidizing the manufacture of energy efficient refrigerators. 

I would argue that were we starting from scratch, these are not the functions we would want a tax collection agency to perform. Tax reform would return the IRS to its core function—simply collecting revenues to fund the basic operations of government.

How to think about this? Granted it's not easy, because people look to tax codes first for just about everything imaginable - even though practically everyone hates the results. If people stopped doing so, what might they come to rely on for problem solving? What, indeed.

For one thing, solutions for service provisions of all kinds need to devolve back to local levels. This is true not just for lower income levels, but for anyone in those moments whenever service options become a bigger part of one's time commitments. Plus, local diverse skills provisioning, would go a long way to make retirement needs less problematic. Seeking greater skills sets liquidity is one of the best means possible to directly supplant taxation complexities, when redistribution can no longer do the job properly.

Direct service provisioning in real (i.e. ongoing aggregate) time, would bring work structure back to numerous regions which have ceased to be a meaningful part of the economic equation. What's more, knowledge use systems could eventually supplant many day to day operational systems which citizens rely upon. When operational expenses are brought into time balance, asset formations also become more capable of fitting into a common general equilibrium. In other words, addressing the root issues of economic access, would go a long way to make redistribution of all kinds unnecessary.

With knowledge use systems in place, government taxation could easily revert back to simpler structures in which taxation mostly exists to generate smooth functioning between government and the multinational formations of globalization. With simple incentive and rationale for taxation, there's a good chance that multinationals would not be compelled to flee taxation to the extent they do now.